Farmers Free to Hoe Their Own Row - And Take More Risks
In first planting under new farm bill, market prices, not mandates, govern.
Farmers in central Ohio's Corn Belt are just starting their spring planting, but many say they are already reaping benefits from the new freedoms granted by the 1996 Farm Bill.
"The government program is really nice now because it allows you to be your own boss, your own entrepreneur," reflects Brian Skinner, who farms some 2,000 acres of corn, soybeans, and wheat in Ohio's Delaware County.
This year as Mr. Skinner revs up his planting machine, market prices - not Uncle Sam's mandates - are determining what and how much he grows. Government constraints no longer throw off his crop rotations or hinder him in switching plans midseason if the weather demands.
Like Skinner, the vast majority of US farmers have signed on to the new, more flexible government program. Nearly 99 percent of eligible US cropland is now covered by this seven-year program, compared with less than 80 percent under the old farm bill, according to the US Department of Agriculture (USDA).
Still, US growers face substantial risks under the legislation passed by Congress last year. Now, government subsidies no longer rise when commodity prices drop - helping to stabilize farm income. Instead, the subsidies are fixed annual payments that will be phased out by 2003, leaving farmers increasingly vulnerable to income swings.
Meanwhile, grain markets are likely to become highly volatile in the near term as the government cuts stockpiles and farmers adjust their crop mix far more freely and rapidly than before, USDA officials say.
"We don't have as much of a safety net as with the earlier bill," concedes David Black, who farms 1,900 acres outside Columbus. "We are pretty much on our own now."
Since the FAIR Act (Federal Agriculture Improvement and Reform) was passed last April, long after most farmers had made planting preparations, its impact was limited. This planting season, however, farmers like Mr. Black are taking advantage of the flexibility to grow different crops.
The most immediate impact so far is that Black and thousands of other US growers are shifting acreage out of wheat and into soybeans. Farmers plan to seed 69 million acres to the nourishing beige bean - a 7 percent increase over 1996 and the most since 1980. Meanwhile, the acreage planted to wheat is expected to shrink 8 percent, according to USDA projections.
"This year, it looks like beans will be the driving force. You are definitely seeing a shift away from wheat," says farmer Rob Leeds, the Ohio State University extension agent in Delaware County.
The trend is largely a response to market signals. Strong domestic and foreign demand for soybeans, along with tight stockpiles, has pushed the crop's price per bushel up 18 percent so far this year. In contrast, wheat prices have been relatively weak, despite a rally this week after a late frost in the southern Great Plains badly damaged the region's winter crop.
Farmers are also planting more soybeans because they are no longer penalized by the government for doing so. Under the old farm bill, soybeans were not subsidized and farmers had to give up payments to grow them. Today, farmers receive the subsidies regardless of what they grow.
Nevertheless, experts warn that the rush to cash in on soybeans could backfire. If the extra soybean acreage leads as predicted to a near-record yield, and foreign crops do well, the current high price for soybeans "could be under considerable pressure by harvest time," says Terry Francl, senior economist for the American Farm Bureau Federation in Park Ridge, Ill.
Facing growing market fluctuations and shrinking subsidies, farmers in Ohio and around the country are adopting new strategies to shield their incomes from risk.
"We will have to be more astute marketers," says Black. Along with increasing numbers of crop producers, he is turning to options, futures, and forward trading - which allows farmers to lock in a future price for crops - to hedge against adverse price shifts.
"We see a lot more interest in the futures markets [among farmers]," says Ed Young of the USDA. This should accelerate a trend that has seen the percentage of food grain and feed grain farmers using forward contracts rise from 2 percent and 1 percent, respectively, in 1970, to 8 percent and 13 percent in 1994, he says.
More farmers are buying crop insurance and a newer form of protection - revenue insurance - to brace against market swings, Mr. Young says. "Now that the safety net is not there, if the weather wreaks havoc with your crops and you don't have insurance, you're pretty much out in the cold," says Mr. Leeds, the extension agent.
Agriculture officials are also urging farmers to diversify their crops and use multiple cropping where possible to ease their adjustment under the new, market-oriented farming policy. The current program facilitates crop rotations, which promote pest- and disease-control and enhance productivity, by freeing farmers to allocate their acreage among different crops.
Despite an outlook of greater economic uncertainty, analysts note that most farmers are currently in good financial shape. US farm income, which hit a healthy $57 billion last year, is projected to reach $54 billion or more again this year.